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Everyone, and their brother, now has an opinion about Ernst & Young – their guilt or innocence, their viability as a firm, and whether they’re criminals or just patsies.

I’ve listened to several journalists and pundits try to field the question, “What’s so bad about only three audit firms?”

Given that many of them can’t name the current four largest audit firms if tested, nor accurately describe their role in the markets regulatory framework, I will hold my criticism of any of their dubious conclusions.

So let's get some facts on the table as a primer for those of you new to this industry:

Who are they?

The four largest accounting firms in the world are Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers. They are global brands. They may act global but they think local.

Kudos to Larry McDonald on Kudlow last night. He was able to accurately state that the four largest firms employ more than 100,000 people each, all over the world. (The rest of that segment was too painful for me to watch. I winced as none of them could intelligently explain the reason why auditors are required at all.)

The four largest firms also pull in more than $100 billion in revenue annually. A shutdown of the US ( or UK) firm for any of them would affect only a fraction of that - business has not been as good for them in developed countries as in emerging markets, lately – but it’s still not something any regulator wants to be responsible for.

What is their business model?

The audit firms are indispensable to the global capital markets because they have a government-sanctioned franchise to provide audits. Those certifications or audit opinions are required by law for public companies to be listed on most global exchanges. What is not being discussed officially in the United States is the rationale for this requirement and how it might be restructured or reconsidered. On this point, the United States is behind the UK, where regulators are actually talking about the form and content of the audit report and whether the current audit process actually serves any useful purpose for investors.

A competitive landscape with few firms of sufficient size such that the actions of one firm can influence the actions of the other firms.

Recurring, cyclical, long-run, abnormal profits such as from regulatory mandates like the 2002 Sarbanes-Oxley Act.

An homogeneous product differentiated only by longstanding relationships between clients and their favored firm.

Perfect knowledge and significant market influence over their own cost and demand functions.

Unique interdependence on each other given independence requirements. There are only so many firms who can service large public companies so clients and firms must be aware of and cooperate in any changes in order to minimize market disruption.

Why is it so hard to hold them accountable?

It’s easier to bring the Big 4 auditors to court than bring them to justice. They almost always settle. They’d rather swallow their pride in preliminary court proceedings – auditors often claim their firm and its partners were “duped” – than try to prove their innocence to a jury, in my opinion.

Settlements against audit firms have been significant in the past, but have not been catastrophic, yet, in any specific case or overall. If the NY Attorney General settles his suit against EY for $150 million representing the fees paid by Lehman to EY between 2001 and 2008 plus a fine of at least as much – a worst case scenario – that will still barely exceed what PwC paid to settle Tyco ($225 million) and be less than what KPMG paid ($456 million) to settle their near fatal tax shelter sins or what EY paid a few years ago to settle Cendant ($335 million).

Unless the settlements start hitting the $1 billion dollar each mark, there’s no ball game. Two cases that could have tested that theory - New Century/KPMG and Satyam/PwC – are settled and fading, respectively.

Are they really a “deep pockets” defendant?

One obstacle to knowing whether EY or any other firm could live through a $1 billion single settlement, or a series of smaller ones that add up too quick, is the fact that the firms do not issue GAAP based, audited financial statements in the US. And they do not articulate their own legal contingencies and reserves for those legal contingencies on a global basis anywhere. Very few, maybe only the US Treasury, know how much pain any one firm could take.

Who can step up if one of the audit firms disappears?

None of the next-tier firms – Grant Thornton, BDO Seidman or any other firm in that category in other parts of the world - could pick up the business of a larger firm that may disappear. The gap in resources, experience, and infrastructure is too large and can’t be filled quickly enough.

And, no, the remaining three large firms could not absorb the work either if one of them suddenly tanked. Almost every multinational public company already uses at least two if not all four of the largest firms for services including their audit, tax, M&A, and technology consulting. These contracts must remain by law, ethics or common sense separate and independent of each other. If the music stops on one of the firms, someone will be left without a place to park their business.

Are any of the other audit firms vulnerable?

Are any of the largest audit firms besides EY vulnerable to a large legal claim such as Lehman?

Yes, and no.

(Don’t forget EY is also subject to lawsuits and much criticism for its role in the debacle at Anglo Irish Bank.)

Note to talking heads: The term for the auditor dilemma is "too few to fail" as in "we can't go down to three from four." Being big is not their biggest problem, in spite of concerns about market concentration. There's a certain scale that's necessary to audit complex global multinationals under the current requirements.

KPMG recently settled two of their big pre-crisis, subprime related suits, New Century and Countrywide, for a relative pittance. Deloitte is on the hook still in Bear Stearns, Merrill Lynch and Washington Mutual litigation, but their share of any settlement – if they’re not dismissed as a defendant first – will probably be minimal.

None of the other banks, and therefore their auditors, were subject to a bankruptcy examiner’s report that provided such a clear roadmap for charges as we've seen in the Lehman case. Given that all of the other banks were “too big to fail” we won’t have a "failure autopsy" on any of the other banks or their audit firms unless more claims actually go to trial.

And that’s highly unlikely if the past serves as any predictor of the future.